USDJPY turned out to be an excellent trade following the February 27th close below the top of a multi-year wedge pattern.
I discussed that price structure on February 25th.
From that closing price to the March trough, the USDJPY lost 840 pips.
It was a massive move that made many of us a considerable amount of money.
However, despite an all-out rout in risk assets, the risk-sensitive USDJPY has clawed back everything it lost earlier this month.
That’s 840 pips down in seven trading days, and 850 pips up in eight trading days.
But the recent strength from USDJPY has less to do with the yen and more to do with USD strength.
That’s evident from this week’s move from the EURUSD, which moments ago reached 1.0725, a target I discussed on Sunday and again two days ago.
As for USDJPY, this is a v-shaped recovery.
I said the same thing about the EURUSD in late February, which led to a 400+ pip move higher into our 1.1450 target.
A v-shaped bottom (or v-bottom) like this is a sign of strength.
That will be especially true if the USDJPY closes today above the 109.70 level.
That’s the top of the multi-year wedge that extends from the 2015 high.
If buyers can get the job done, that 109.60/70 area would flip to support.
It would also expose resistance levels like 112.20 and perhaps 114.50.
Alternatively, a daily close below 109.60 would keep that area intact as resistance a while longer.
Such a close would open the door to support levels like 108.50.
This is one of those situations where patience will pay off.
Yes, the v-shaped recovery points to strength, but that 109.60/70 region will be the determining factor
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